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On State Funding and Innovation

I am glad to see that Roderick is largely in agreement with my comments on patents and copyrights. As I am afraid that Tim Lee’s comment has misrepresented my views on alternatives to drug patents, I’ll take this opportunity to clarify what I view as the best system.

I do not support a prize system, for many of the reasons mentioned by the author. A prize system would preserve what I see as some of the worst problems of the patent system, most importantly encouraging secrecy in research.

My ideal system would be a system in which the government allocates a pot of money (@$30 billion a year—approximately equal to private R&D in the pharmaceutical sector) that would be awarded in long-term contracts to a relatively small number of master contractors. For example, there can be 10 master contractors getting grants of roughly $30 billion each spread over 10 years.

The model here should be government contracts for major projects, like building an airport. There are certainly problems with such contracts, but these problems seem relatively minor compared with the costs associated with charging hundreds of dollars for drugs that would sell for just a few dollars in a competitive market.

There are two conditions on the funding. First, all results are posted fully and promptly. This will allow researchers throughout the world to quickly gain the benefit of research funded through this system. They will be able to independently analyze the data and compare findings across studies. This should substantially hasten the research process.

Second, all patents are placed in the public domain subject to copyleft rules. This means that any drugs based on this research can be produced and sold as generics. Researchers outside the system can take advantage of research in the publicly funded system, but they must either place any derived patents in the public domain or negotiate an agreement with the contractor who holds the patent. This should result in the vast majority of new drug patents being placed in the public domain.

Of course this is not a perfect system and there may well be better alternatives, but the point is to get the discussion started. It is remarkable how little attention mainstream economists pay to such an enormously important issue. Perhaps a progressive-libertarian alliance can force economists/policy makers to take this issue seriously.

Also from This Issue

In this month’s lead essay, philosopher and libertarian theorist Roderick T. Long draws a sharp contrast between corporatism and libertarianism properly understood. He argues that liberals, conservatives, and even libertarians have all been guilty to some degree of obscuring this difference, and that the quality of our political discourse has suffered accordingly. He suggests that libertarians should guard themselves against falling into the trap of “vulgar libertarianism,” in which all things good spring from business, and particularly from business as usual. Corporations, he argues, should be no more free from scrutiny than any other institution in society, and often businesses have done more than their share to hamper free economic relations in the industrialized world.

One implication of all of this is that the truly free market is farther away than we imagine. Long suggests several ways in which a freed market would be different from what we see around us today. Notably, nearly all of these differences are to the benefit of the consumer and the small or start-up business. These likely outcomes of laissez faire suggest new grounds for left-liberals and libertarians to revise their thinking on economic issues and on politics more generally.

In his response to Long, Matthew Yglesias argues that although corporations naturally seek to win special privileges from the state, libertarianism is far from the obvious solution to the problem. Instead, he reiterates the charge that libertarians often act as corporate apologists and suggests that the net effect of any “free market” advocacy will tend strongly toward corporate power. Liberals may have much to learn from libertarians on certain issues and in some policy areas, but the laissez-faire solution to corporate political influence is unworkable.

Steven Horwitz offers several examples of so-called “de-regulation” that only served to benefit corporations, while leaving the government, and therefore the taxpayers, to shoulder the risks of the market. He argues that market competition is a form of regulation, albeit a kind worth wanting, as it forces corporations to respond to consumer demand and punishes them when they fail to meet it. He takes issue with Long’s lead essay by arguing that “playing defense,” that is, defending today’s corporations when they act consonantly with a fully freed market, is a valuable part of libertarian advocacy. One must nonetheless take issue with these same corporations when they violate the principles of laissez faire and distinguish carefully between these cases.

In his response essay, Dean Baker declines to tally up a “score” of how well libertarians, or other groups, have defended a truly impartial, laissez faire economy. Instead, he suggests intellectual property as an obvious area where libertarians must challenge corporate power to distort the market. Patents that make health care more expensive and copyrights that artificially restrict whole areas of our culture are obviously concessions to corporatism, and the “extraordinary abuses” undertaken to enforce these privileges should be vigorously challenged. Although libertarianism has been skeptical of both patents and copyrights, Baker suggests that this is an area deserving still further attention, and one in which liberals could perhaps become solid allies.

The discussion this month has focused to a greater than usual degree on the activities of certain Cato Institute policy scholars. The editors thought it appropriate to solicit responses, and we present them here in their entirety.

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